⚡️Market Strategy Flash
July 31, 2026
As my regular readers know, I’ve argued that strong sales tell companies the world wants their products and services. In turn, capital expenditures (capex) are companies’ way of telling the world that they’ll provide more of their products and services, faster.
When businesses see sustained demand, as is currently the case, they rationally shift fromdefensivetooffensivepostures because revenues are a “green light” for Chief Executive Officer (CEO) confidence. Management is much more likely to approve a multi-year expansion plan if the current quarter’s sales break records. Indeed, results transform capex from a “nice to have” to a “need to have” and this time is no exception (see the chart below).
Feedback Loop: CapEx LiterallyManufacturesFuture Sales Growth
Sources: FRED, WCG, 07/29/26. Notes: Shaded areas denote NBER US recessions. NBER = National Bureau of Economic Research.
Virtuous Cycle
Could the relationship between sales and capex also work in the other direction? Is it a circular, self-reinforcing dynamic? Yes, it’s a two-way street that transforms our discussion from a simple correlation analysis to a structural “big picture” thesis. In economics and corporate finance, it’s known as a “multiplier effect:”
- Present Sales Drive CapEx (Trigger):Surging top-line growth – 11.9% year-over-year (Y/Y) in May – fill corporate coffers with cash. The good news is that all 11 sectors of the S&P 500 are enjoying revenue growth, led by information technology (35% Y/Y), energy (28% Y/Y), communication services (15% Y/Y) and financials (13% Y/Y). In turn, strong sales growth gives management teams the conviction to authorize strong capex growth – 12.5% Y/Y in June.
- CapEx Drives Productivity (Multiplier):When companies deploy that capital – especially into tech infrastructure, artificial intelligence (AI) and digital platforms – they aren't just buying equipment. Rather, they’re buying efficiency. As I’ve written, digital infrastructure allows companies todo more with less, lowersmarginal costsand increasesoperating leverage.*
- Productivity Drives Future Sales (Feedback Loop):This is where the cycle completes itself, and the “Big Banks” (e.g., JPMorgan, Goldman Sachs, Citigroup, Bank of America, Wells Fargo) are just one recent example. Because our major financial institutions invested heavily in digital infrastructure, they can now process higher transaction volumes and offer better, faster services to their clients. Superior capabilities attract more deposits, drive higher engagement and ultimately result in the next wave of top-line growth.**
Productivity Promise
Is my “tech enablement” thesis working? Yes. If the revenue-to-capex relationship were just a one-way street, and sales simply generated one-off purchases of equipment, then the momentum would eventually stall once the equipment was bought. A machine can only stay in motion via an external energy source.
Fortunately, capex literallymanufacturesfuture sales growth. Specifically, it creates operating leverage, widens margins and generates the income to invest in the next wave of innovation. To wit, seven of the 11 sectors of the S&P 500 have benefited from margin expansion over the past year (see the chart below). New and old economy segments alike have kept their “productivity promise” by harnessing a fundamental machine powered by an external source of energy:Demand.
Margin Expansion: From Tech “Concentration” (M7) to Tech “Diffusion” (S&P 493)
Sources: FactSet, WCG, 07/29/26.
Broader Market = Healthier Market
- Stage 1of the “tech enablement” cycle has been dominated by the “Magnificent Seven” (M7) and “hyperscaler” companies building and investing in the pipes, processing power and platforms that support the modern equivalent to the “Gold Rush” of the 1800s. In this “concentration” phase, massive capex and tech spending has created the digital and physical infrastructure of the AI revolution.
- Stage 2of the “tech enablement” cycle isn’t a rejection of “Big Tech.” On the contrary, it’s about the remaining 493 companies leveraging those new platforms to capture and reap the rewards of superior operating efficiency. In this “diffusion” phase, tech is adopted by non-tech companies, thereby enabling users’ evolution to a higher plane of existence (see the table below).
Tech: An “Enabler” for the Rest of the Market
Sources: WCG, 07/29/26.
Bottom Line:It isn’t just about a handful of great companies anymore. For the stock market rally to continue, it can’t rely on a single cylinder of our growth engine or seven mega-cap tech giants. Tech-enabled companies across the communication, energy, material, financial, utility and industrial sectors must carry their share of the load. According to FactSet, the S&P 493 companies are expected to narrow the gap with earnings growth of 23% Y/Y in 2Q26 (see the table below), which would be the fastest pace since their earnings grew 32% Y/Y in 4Q21.
Earnings Growth: Mind the Gap – Tech Itself Should Enable a Broader Stock Market
Sources: FactSet, WCG, 07/29/26. Notes: EPS = Earnings per share. E = Estimate.
If you like what you see and want more striking visuals, please check out our 2026 Mid-Year Macro Outlook entitled, “Dynamic Optimism in a Non-Inflationary Equilibrium,” or reach out to your WCG financial advisor for a copy.
*⚙️ Doing More With Less: Why S&P 500 Employees Are 3x More Productive Than the Average US Worker, February 6, 2026.
**🏦🤖 Bank Earnings Ratify the “Tech Enablement” Thesis, July 17, 2026.
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TheNational Bureau of Economic Research (NBER)defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Recessions are the periods between peaks and troughs of the business cycle.
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Publication Date: July 31, 2026
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